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Boyd v. Tornier

June 18, 2009

GARRY BOYD, BOYD MEDICAL INC., CHARLES WETHERILL, AND ADDISON MEDICAL, INC., PLAINTIFFS,
v.
TORNIER, INC., AND NEXA ORTHOPEDICS, INC., DEFENDANTS.



The opinion of the court was delivered by: Michael J. Reagan United States District Judge

MEMORANDUM AND ORDER

REAGAN, District Judge

A. Background and Introduction

Currently before the Court is Tornier's motion for summary judgment as to Addison Medical and Charles Wetherill (Doc. 99). Plaintiffs Boyd Medical and Addison Medical are distributors,*fn1 each of which contracted with Tornier to sell Tornier's orthopedic medical devices in certain regions of the United States. In 2003, the parties entered into separate contracts through which Boyd Medical became Tornier's exclusive distributor in portions of Illinois, Missouri, and Kansas, and Addison Medical became Tornier's exclusive distributor in Iowa.*fn2 The agreement provided that it would last one year, and that either party could terminate the agreement at the end of the term by giving 30-days notice. If neither party terminated it by this method, the agreement would automatically renew for successive one-year terms. However, Tornier claims that it also had the right to terminate the agreement upon written notice at the end of any quarter in which a distributor failed to reach the projected sales quota, as set by Tornier.

In fact, Tornier terminated its agreements with Boyd Medical and Addison Medical in May 2007, on the grounds that each had failed to meet its first quarter quota that year. In 2007, Tornier also purchased Nexa Orthopedics, which develops and manufactures orthopedic devices. Tornier opted to use Nexa's distributors after terminating its agreements with Boyd Medical and Addison Medical.

On October 31, 2007, Plaintiffs filed this lawsuit against Tornier alleging Breach of Contract (Counts 1 and 5), Fraud in the Inducement (Counts 2 and 6), and Negligent Misrepresentation (Counts 3 and 7).*fn3

Tornier moved for summary judgment against Addison Medical and Charles Wetherill on March 9, 2009 (Doc. 99). Plaintiffs submitted a response on April 3, 2009 (Doc. 107), and Tornier submitted a reply on April 10, 2009 (Doc. 111). Having fully reviewed the parties' filings, the Court hereby GRANTS IN PART AND DENIES IN PART Tornier's motion for summary judgment (Doc. 99).

B. Factual Background

Addison Medical signed an Agency Agreement with Tornier on June 2, 2003, which granted Addison Medical an exclusive distributorship to sell Tornier products in the assigned territory (Doc. 95-2, Exh. C). This territory was made up of "[t]he State of Iowa, east of Hwy 71" (Doc. 95-2, Exh. C, Appendix II). The agreement provided two separate methods of termination. First, either party could terminate the agreement "as of the end of the term upon not less than thirty (30) days prior written notice" (Doc. 95-2, Exh. C, ¶ 9.1). However, Section 9.3 of the Agency Agreement also stated that Tornier "shall have the right to terminate this Agreement upon written notice to the Agency following the close of any quarter in which the projected minimum sales have not been attained by the Agent" (Doc. 95-2, Exh. C, ¶ 9.3). Despite this provision, the Tornier Agency Manual, which is expressly incorporated into the Agency Agreement (see Doc. 95-2, Exh. A, ¶ 1.6), states:

Sales performance for any given quarter that is more than 25% behind quota may result in immediate termination of the Agency Agreement.

When sales performance is less than 25% behind quota, the following steps may be initiated:

* First Warning -- this is a verbal warning that requires the Agent to improve performance and achieve quota levels within 30 to 60 days as specified by TORNIER, Inc.

* Second Warning -- this is a written communication between the Agent and TORNIER and it requires the Agent to meet quarterly sales objectives (quota) within 30 to 60 days as specified by TORNIER, Inc.

* Performance Improvement Plan or Written Probation -- this is a written set of requirements that must be attained (including but not limited to attainment of quota) for the Agency Agreement to remain in effect.

* Termination -- may occur when performance is not improved following the implementation of the three actions described immediately above (Doc. 95-2, Exh. B, p. 6).

Addison Medical failed to meet quota in any year from 2004 to 2006 (Doc. 107-4, App. 160, Wetherill Depo., pp. 52-53) and met its quarterly quota only three times during this period (Doc. 64-6, App. 113). Nonetheless, Tornier renewed Addison Medical's Agency Agreement each year. Additionally, Rick Carrow, a Tornier executive, told Wetherill in 2004 that he was "the man in Iowa" (Doc. 107-5, App. 205). In 2006, Carrow said that Wetherill was "a big part" of what he referred to as Tornier's "New Dawn" (Doc. 107-5, App. 207). Around that same time, he also told Wetherill that he was "top shelf" (Doc. 107-5, App. 206). With respect to the fact that Addison Medical struggled with its quotas, Wetherill claims that Carrow told him he had "nothing to worry about" and referred to Wetherill as "the chosen one" (Doc. 107-4, App. 165, Wetherill Depo., pp. 88-89).

During the parties' relationship, Addison Medical claims that Tornier's representatives indicated that if Addison Medical made certain changes to its business model, Tornier's business relationship would continue. Specifically, Addison Medical claims that it was continually asked to hire more employees and avoid selling products from other lines so that the focus would remain on promoting Tornier's products. Addison Medical claims that it did in fact hire additional employees , including one in late 2006. However, Tornier claims that it only informed its distributors that this was its preference and never promised any distributor, including Addison Medical, that it would remain a Tornier distributor simply because it complied (Doc. 108-4, App. 117, Carrow Depo., pp. 49--50).

At the beginning of 2007, Addison Medical received its quotas from Tornier. Addison Medical's 2007 quota included a 73% increase over its 2006 quota (Doc. 64-6, App. 113). The first quarter quota also included some products that Plaintiffs claim were not yet available or else had only limited availability (see Doc. 108-4, App. 134, Boyd Depo., p. 45), though Tornier claims that all products were available for sale in 2007 (Doc. 108-2, App. 18--19, Sherburn Depo., pp. 190--96). Nonetheless, Addison Medical never asked Tornier to alter the quota, and Wetherill indicated that he was "not too concerned for the overall all performance" in mid-February 2007 (Doc. 107-6, App. 237; Doc. 107-4, App. 163, Wetherill Depo., pp. 71-72).

At the end of the first quarter in 2007, Addison Medical failed to meet its quota of $237,375 and sold only $110,991, which is approximately 47% of the quota (Doc. 64-6, App. 113). At some point in March 2007, Tornier decided to terminate Addison Medical as a distributor and replace it with Archway Medical (Doc. 108-2, App. 23, Sherburn Depo., pp. 210--212). The termination of Addison Medical's distributorship was confirmed by letter dated May 14, 2007, and became effective May 31, 2007 (Doc. 64-7, App. 188). Archway began work as a Tornier distributor in Addison Medical's territory in June 2007 (Doc. 98-7, App. 569, O'Day Depo., p. 192).

C. Legal Standards Governing Summary Judgment Motions

Summary judgment is appropriate when there are no genuine issues of material fact, and the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).

FEDERAL RULE OF CIVIL PROCEDURE 56(a) provides:

[Summary judgment] should be rendered if the pleadings, the discovery and disclosure materials on file and any affidavits show that there is no genuine issue as to any material fact that the movant is entitled to as a matter of law.

Because the primary purpose of summary judgment is to isolate and dispose of factually unsupported claims, the non-movant may not rest on the pleadings but must respond, with affidavits or otherwise, setting forth specific facts showing that there is a genuine issue for trial. Oest v. IDOC, 240 F.3d 605, 610 (7th Cir. 2001); Moore v. J.B. Hunt Transport, Inc., 221 F.3d 944, 950 (7th Cir. 2000). The "mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

The burden is on the non-moving party to produce specific facts that show a genuine issue for trial. FED.R.CIV.P. 56(e); Moore, 221 F.3d at 950. "Conclusory allegations and self-serving affidavits, if not supported by the record, will not preclude summary judgment." Haywood v. North American Van Lines, Inc., 121 F.3d 1066, 1071 (7th Cir. 1997); see alsoFED.R.CIV.P. 56(e) ("an opposing party may not rely merely on allegations or denials in its own pleading").

In determining whether a genuine issue of material fact exists, the Court views the record in the light most favorable to-and draws all reasonable inferences in favor of-the non-moving party. Anderson, 477 U.S. at 255.

D. Addison Medical's Breach of Contract Claims

1. Governing Law

As a federal court exercising diversity jurisdiction, this Court applies federal law in resolving procedural and evidentiary issues, and Illinois law with respect to substantive law. Bevolo v. Carter, 447 F.3d 979, 982 (7th Cir. 2006) (citing Colip v. Clare, 26 F.3d 712, 714 (7th Cir. 1994)). As such, this Court applies Illinois's choice-of-law rules to determine the applicable substantive law. See Hinc v. Lime-O-Sol Company, 382 F.3d 716, 719 (7th Cir. 2004); Kohler v. Leslie Hindman, Inc., 80 F.3d 1181, 1184 (7th Cir. 1996). Illinois follows theRESTATEMENT (SECOND) OF CONFLICT OF LAWS in making such decisions. Midwest Grain Products of Illinois, Inc. v. Productization, Inc., 228 F.3d 784, 787 (7th Cir. 2000).

For contracts claims, the Restatement and Illinois law respect a contract's choice-oflaw clause as long as the contract is valid. Kohler, 80 F.3d at 1185. In this case, the parties' contract includes a choice-of-law provision, which provides that the contracts "shall be construed and determined in accordance with the laws of the State of Texas." Doc. 95-2, ¶ 10.12; Doc. 28-3. As the parties do not contest the contracts' validity, the Court applies Texas law to Plaintiffs' breach of contract claims.

2. Termination of the Agency Agreement

It is well-settled under Texas law that the elements necessary to prove a claim for breach of contract are (1) the existence of a valid contract, (2) plaintiff's performance or tendered performance of the contract, (3) defendant's breach of the contract, and (4) plaintiff's damages. Lopez v. M.G. Bldg. Materials, Ltd., -- S.W.3d --, 2009 WL 1546145, *4 (Tex. App. June 3, 2009).

In Count 5, Plaintiffs claim that Tornier breached that agreement by engaging in a wide variety of conduct, including setting unattainable quotas for the first quarter of 2007, developing these quotas without proper consideration of the Agency Manual's stated guidelines, failing to make adequate efforts to support Addison Medical's sales, appointing another distributor in Addison Medical's territory prior to the termination of Addison Medical's exclusive distributorship, and terminating Addison Medical for reasons other than its failure to meet its first quarter quota.*fn4 Tornier argues that all of Addison Medical's breach of contract claims fail.

a. Tornier's Motivation for Terminating Addison Medical

The Court begins with Addison Medical's claims that Tornier breached contract for terminating its distributorship for reasons other than its failure to meet quota. For instance, Addison Medical claims it was terminated because it did not have a separate office or a specific number of salespeople. As the Court noted in its Order granting in part Tornier's motion for summary judgment as to Boyd Medical and Garry Boyd (Doc. 126), this claim misses the point. Addison Medical's breach of contract claim depends on whether or not Tornier had the right to terminate its distributorship. Tornier appears to concede that the only valid basis it may have had to terminate the distributorship is Addison Medical's undisputed failure to meet its first quarter quota in 2007. If Tornier had the right to terminate the agreement at the end of that quarter, then there was no breach, regardless of whether Tornier may have had other reasons for the termination. Accordingly, Addison Medical's breach of contract claims must be dismissed insofar as they rely on Tornier's ulterior motives for termination.

b. The Attainability of Addison Medical's Quotas

This brings the Court to the question of whether Tornier did in fact have the right to terminate Addison Medical's distributorship due to its failure to meet quota. As noted above, Section 9.3 states that Tornier "shall have the right to terminate this Agreement . . . following the close any quarter in which the projected minimum sales have not been attained by the Agent" (Doc. 95-2, Exh. A, p. 4, ¶ 9.3). Unlike Boyd Medical, Addison Medical does not argue that the Agency Manual further required the implementation of a Performance Improvement Plan prior to termination. The reason for this is obvious: at best, the Agency Manual can be read to require Tornier to provide warnings and opportunities to a distributor who is within 25% of its quarterly quota (Doc. 95-2, Exh. B, p. 6).*fn5 However, where a party sells at less than 75% of its quota, the Agency Manual permits Tornier in no uncertain terms to terminate that distributor. Addison Medical was nowhere near the relevant threshold, as it only sold 47% of its quota.

As a result, it appears that Addison Medical's primary breach of contract claims rests on the allegation that Tornier set unreasonable and unattainable quotas. Tornier argues that this is not a valid basis for a breach of contract claim, because the contract does not explicitly require Tornier to set "attainable" or "reasonable" quotas. ...


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